Rebirth

The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis.

Deng Accepted That There Were Limits to His Expertise

Changing China's Market Framework

China's Opacity Protected it from Crisis

Entrepreneurship Was a Key to China's Boom

Cui Zhiyuan

Professor of Public Policy, Tsinghua University

Cui Zhiyuan teaches Comparative Public Policy and Governance and Development at Tsinghua University. As a graduate of China's National University of Defense Technology, Cui went on to obtain both an MA and a Ph.D. in Political Science from the University of Chicago. He has been awarded visiting fellowships and instructor positions at various world-renowned institutions including MIT, the National University of Singapore, Harvard University Law School, the Institute for Advanced Study in Berlin, and Cornell University. Dr. Cui has also served as a member of a number of editorial boards for various journals and publications.

So, many Chinese companies like, for example, the Baoshan Steel Corporation in Shanghai, now have maybe 75% of their shares owned by the State, but another maybe 10% are owned by other legal persons, namely other institutions, maybe another bank, like the Communications Bank. And maybe another 10% are owned by other individual shareholders like me. We just buy it [stock] in the stock market. So, this corporatization was a major experiment. I think, by now, maybe more than half of state-owned enterprises have been corporatized. They have a board of directors and some of them are listed on the Shanghai and Shenzhen Stock Market. And I think this kind of corporatization is still going on today. But, since 1995, I think there's another trend, which is just outright privatization of many state-owned enterprises, especially at the city and provincial level. So, [the trend is] not to try the responsibility system or corporatization. Just privatize them, sell them to private entrepreneurs. So, this is a very big change since the middle of the '90s and it is very controversial, of course, 60 million to 80 million traditional state-owned enterprise workers have been, essentially, kind of fired. We do not use this word, and they have some kind of severance payment, but this large scale restructuring, privatization, in the local level state-owned enterprises and the accompanying transformation of this labor force in the traditional state-owned sector is a huge social transformation. I mean, it is very controversial to this day. If you think about it, actually, it would be very difficult for it to be done in many other countries because, [in the] whole process, 80 million people in the state-owned sector at the provincial level essentially lost their jobs.

For China, in terms of economy, it's very interesting. I think it's a mixed economy. A mixed economy in the sense of coexistence of public owned enterprises and public owned assests and resources and huge amounts of private owned enterprises. So, how should I say it, this coexistence, because the public owned enterprises and assets are still quite significant. Because people at the central government level, because as I said, the privatization mostly occurred at the provincial and the city level, but at the central government level, the major enterprises, like China Telecom, and PetroChina , the major oil company, and there are about 160 [other] SOEs under central government control that are still alive, and performing very well actually, making huge profits. And also the four major state owned banks, China Construction Bank, China Commercial and Investment Bank, the Agricultural Bank, and the Bank of China, those four major banks are corporatized. They are--the Bank of China has strategic investors, like the Bank of America. But China's central government owns them, more than 80% of the shares. Of course, the public ownership of all the land in the cities, and the collective ownership of the land, by whole villages in the Chinese countryside, it means that public and collective ownership are still very significant in the Chinese economy. But at the same time, the private economy is also very very significant.